By Kim Tae-gyu
Staff Reporter

Just six months ago, an analyst who had predicted the benchmark KOSPI would reach 1,700 anytime soon would have been regarded as crazy as the index was struggling in the vicinity of 1,000 at the time.

In fact, few analysts took the risk of being dubbed as crazy back then. But the KOSPI has shot up, touching the 1,700 mark Thursday for the first time in 15 months.

The won-dollar exchange rate has headed in the opposite direction. It approached 1,600 won a dollar in early March but has stabilized of late in the neighborhood of 1,200 won.

The main KOSPI gained 12.14 points, or 0.72 percent, to end at 1,695.47 Thursday, while the Korean won continued to rally against the U.S. dollar, closing at 1,204.8 won, up 6.5 won from the previous close.

In this climate, brokerage houses here are competing to raise KOSPI forecasts for this year from the previous consensus of around 1,750.

Hyundai Securities boosted its predictions Thursday from 1,700 to 1,800, noting that the global economic turnaround has been stronger than originally expected.

``In the short- to mid-term, the economy is expected to outpace market expectations. By the end of this year, the KOSPI is projected to reach 1,800 points,'' Hyundai said in a report.

Foreign financial companies are also joining the trend of painting rosy pictures. Last month, Deutsche Bank said that the KOSPI has a shot at rising to as high as 1,830 this year.
``Most economic indicators are strong ― such as consumption and industrial production ― both locally and globally with the sole exception of the job market. This props up the stock market,'' Samsung Securities economist Hwang Geum-dan said.

On top of the improved fundamentals, offshore money offers continued momentum to the upsurge in the stock markets - since July 15, overseas investors combined for a net buying of more than 11 trillion won on the main bourse.

``Before foreigners and institutional investors stop the relentless buying spree, the bullish run will continue. In my view, the buying binge is not likely to finish overnight,'' Shinhan Investment Corp. analyst Lee Sun-yup said.

The brisk buying pace was in no small part sparked by the Financial Times Stock Exchange's (FTSE) upgrading of Korean shares from the emerging markets group to the top-tier developed markets starting this month.

``The effect of the FTSE upgrade was more powerful than we initially imagined. We just thought that some European players would increase their stakes in the Korean market,'' Hyundai Securities researcher Cha Eun-joo said.

``But even Japanese investors started to snap up equities of Korean firms as soon as the FTSE categorized the country as a developed market, thus underpinning already high share prices,'' she said.

However, not all the market watchers agree that the share prices will only move upward.

``The power of liquidity channeled by offshore players buttresses the share prices and the effect will continue for the time being. But we cannot expect the KOSPI will appreciate dramatically, as it did during the past months,'' Woori Securities analyst Lawrence Kim said.

``The chances are that the KOSPI will fluctuate at around 1,700. The price-earning ratio rose too high, which indicates that a further upswing is unlikely,'' he said.

Shin Young Securities analyst Kim Se-jung concurs.

``This is not the right time to buy shares. You cannot expect handsome returns, as the prices have shot up too much. Rather, you may have to worry about downside risks,'' Kim said.

``I recommend long-term investment for potential-loaded segments in areas combining green technology and information technology,'' he said.

Although there are pessimists regarding the stock market, it is hard to find an observer who predicts that the domestic currency will lose value against the dollar.

Rather, Asia's No. 4 economy worries that the won-dollar exchange rate is falling too fast, causing local corporations to lose price competitiveness in exporting dollar-denominated products.

``Most analysts predict that the won-dollar rate will eventually go down to around the 1,100 won to 1,150 won level later this year,'' a Seoul analyst said.

voc200@koreatimes.co.kr